It can be thrilling to start a business, and deciding what type of business structure to adopt is perhaps one of the most important parts of the process. A Limited Liability Company (LLC) is one of the popular options for business enthusiasts as it has the benefits of both a corporation and a partnership.
In the state of Pennsylvania, forming an LLC does not only include personal liability protection for its owners but also includes management and taxation flexibility. Whether you are starting a new small business, a new startup, or a new side business, knowing the procedure to form an LLC in Pennsylvania is important.
By following this guide, it is productive to sequentially progress from the selection of an appropriate name with an active registered office to the submission of applications and compliance with state laws and regulations.
Benefits of forming an LLC in Pennsylvania
1. Limited Liability Protection
One of the main reasons people form an LLC is that the business protects its members (owners) against personal liability for business debts and claims thereof. Personal assets, such as your house and your savings, are generally protected from creditors if the company runs into financial or other challenges.
2. Less Rigid Organizational Structure
LLCs possess the option of being run in different ways. Members may choose to manage the business (member-managed) or positive delegates (manager-managed) to do so. This makes it possible to have different approaches to managing a business.
3. Single Taxation
Members and owners of businesses don’t pay taxes twice on income. Usually, LLCs are subject to pass-through taxation where losses and profits of the business are reported on the members’ tax. This prevents double taxation experienced by corporations where income is taxed by the organization and individual.
4. Limited Formalities and Maintenance
Limited liability companies compare favorably with corporations in the context of formalities and ongoing compliance obligations. There is no requirement to conduct yearly meetings or maintain detailed records of corporate minutes so it is far easier to sustain.
5. Increased Proficiency
Working as an LLC will increase the proficiency of your business. The presence of the phrase “LLC” in the business name alerts potential clients and partners that the business is already an incorporated entity which enhances confidence.
Step-by-Step Guide to Form an LLC in Pennsylvania
Step 1: Pick a Name for Your LLC
Choosing the ideal name for your LLC is important since this will be one of the most important aspects of your brand and image. A positive and elegant name will not only make your business distinctive but also enhance your reputation.
Requirements:
The name ought to contain the words Limited Liability Company or its abbreviation, such as LLC or L.L.C. This denotes the legal form of your business, which may be beneficial when it comes to legal matters.
The name must not be deceptive or suggest that the business is a corporation or partnership in a different capacity, which would create misunderstandings and other legal complications.
Uniqueness:
Check the Business Entity Database of the Pennsylvania Department of State thoroughly to verify that no other business in Pennsylvania has taken the name you selected. This assists in preventing legal conflicts and guarantees that your business name stands out in the industry.
Reservation:
Before filing papers for your LLC, you may want to reserve the name for not more than 120 days. This can be done by filing a Name Reservation form and remitting $70. This gives ease of mind as it allows you to hold a name until some other requirements are fulfilled.
Step 2: Appoint a Registered Office
All these, however, do not mean that Pennsylvania LLCs do not have a registered office to open as the law requires every Pennsylvania LLC to have one to accept all the official correspondence about the LLC.
Location:
There should be a regular street address for the registered office in Pennsylvania, no PO Boxes. The aim is to ensure that there is a real site where documents are served and may also be received.
Agent:
You may elect to appoint a registered agent who is either an individual or a business entity to receive documents legally on behalf of your LLC. The Agent on it must also be a resident of Pennsylvania to help comply with the regulation.
Step 3: File the Certificate of Organization
This, so much is clear, is a document that is essential to make this effort official as in the case of Pennsylvania LLC and once again establishes the basic features of your LLC.
Form:
Attach a copy of the completed Certificate of Organization, more specifically Form DSCB:15-8821. The following details are required to be incorporated in this form:
- The letter L, letter L, and letter C are to be placed in one order which may or may not confuse with any already existent LLC.
- The office that receives the LLC applications.
- The activities of the only company, CPA or RA.
- Every West Virginia LLC must carry out this last formal step, which is vital for the public records of the company.
Filing Options:
The certificate can be filed online at the Department of State of Pennsylvania’s website which is long and tedious OR by mailing the application.
Filing Fee:
The filing fee was found to be $125. As far as budgets and finances are concerned, make sure to view any changes because fees have a high tendency to change.
Step 4: Establish an Operating Agreement
Although the law requires no such document in the state of Pennsylvania, it is of the essence to have it for the owners to work in the same direction.
Purpose:
This document deals with the WH subcommittee structure, which is inclusive of all writing style sections according to the WH, among other things. An intra-company conflict may be avoided by providing appropriate definitions for the participants: relationships and expectations that have specific tasks and roles.
Contents:
Draft any of the following details:
- Tasks and sub-tasks that are to be carried out by the member(s) and capital contributions.
- The extent to which Members’ profits and losses shall be shared.
- Management shall be undertaken by members or managers as provided by the contract.
- Procedures about how new members will be added and standing members removed and all other issues concerning governance.
Step 5: Apply for the Employer Identification Number (EIN)
An EIN is required for tax purposes and is commonly asked for when creating a business account, acquiring permits and however is not only limited to these purposes.
Application:
One can acquire an EIN by filling out an application at the IRS. It is free of charge and easy to apply for as you can often receive an EIN instantly when applying online.
Importance:
An EIN is mandatory if your LLC has more than one member. It’s the social security number of your company and is needed for many transactions that involve law or money.
Step 6: Meet the State and Local Obligations
You may also be required to get additional licenses, permits, or approvals to carry on certain business activities depending on the industry and geographical location.
State Licenses:
There are also other professions like medicine, legal and construction, etc which are regulated by state licenses so if yours is a Pennsylvania business inquire the Pennsylvania Department of State for business-specific requirements.
Local Permits:
Reach out to your city or county offices to find out if local business licenses, zoning permits, and other forms of approval are necessary for your operation. These requirements must be followed to avoid any legal issues.
Step 7: Submit the Annual Report and Other Compliance Papers to the appropriate institution.
The same may be said for filing annual reports by Pennsylvania-based LLC, maintaining compliance status with other obligations is of utmost concern if at all the business is to last.
Submission of a Decennial Report:
Once every ten years, an LLC is expected to submit a report known as the Decennial Report to prove that it’s still active. The due date of this report is always between January and December of any year whose last digit is one (for instance, 2011) whereby it is easy to figure out this report’s cycle as a straightforward 10-year interval necessary for the LLC to be recognized legally.
Meeting the Good Standing Requirement:
The good standing of the LLC must be maintained by adhering to all current state and municipal authorities’ legal obligations, especially settlement of the relevant taxes and fees. Also, compliance means non-exposure to any fines as well as ensuring business continuity.
Conclusion
When creating an LLC in Pennsylvania, there are quite some provisions such as proper naming of the business, registration of the trademark, and other legal requirements at the municipal and state level including compliance with other laws.
These steps, coupled with putting into consideration other elements such as tax identification or tax registration, as well as insurance, will assist in placing the newly founded LLC towards prosperity as the owners enjoy some level of limited liability.
Book a free consultation for clear guidance on how to set up a Pennsylvania Limited Liability Company and any other services that you may need.
Nabin Adhikari
